Bankwell Financial Group Earnings Call Highlights Profitable Growth

Bankwell Financial Group Inc ((BWFG)) has held its Q4 earnings call. Read on for the main highlights of the call.

Bankwell Financial Group’s Earnings Call Signals Solid Momentum Despite Select Headwinds

Bankwell Financial Group’s latest earnings call struck an overall upbeat tone, with management emphasizing broad-based progress in profitability, funding, asset quality and capital strength. Positive trends in net interest margin, nonperforming assets and fee income—especially from a now fully operational SBA platform—more than offset a handful of drag factors, including a one-time tax charge, some compression in asset yields, higher structural expenses and episodic business volatility. Management framed 2026 guidance as constructive, underpinned by disciplined balance sheet management and continued investment for growth.

Strong Quarterly Earnings Masked by One-Time Tax Hit

Bankwell posted robust underlying results in the quarter, with GAAP net income of $9.1 million, or $1.15 per share. Adjusting for a one-time tax item, operating income rose to $10.7 million, or $1.36 per share. On this operating basis, return on average assets reached 1.29% versus 1.11% reported, and return on tangible common equity climbed to 14.32% versus 12.31% on a GAAP basis. Management repeatedly pointed investors to these operating metrics as a clearer read on the bank’s earnings power going into 2026.

Revenue Productivity and NIM Continue to Improve

Revenue generation was a standout. Pre-provision net revenue return on average assets reached 1.80%, up 10 basis points from the prior quarter and 75 basis points versus 2024, signaling stronger core profitability. Net interest income came in at $26.9 million, supported by a net interest margin of 3.40%, up 6 basis points sequentially despite a less favorable rate backdrop. The call underscored that this level of pre-provision profitability gives Bankwell flexibility to absorb investments and normal credit costs while still delivering attractive returns.

SBA-Driven Fee Income Becomes a Meaningful Earnings Lever

Non-interest income accelerated as the bank’s SBA business moved into full stride. Fee-based revenue rose to $3.4 million, a 35% increase versus the prior quarter, fueled by $2.2 million of SBA gains on loan sales. As a result, non-interest income now accounts for 11.4% of total revenue, up sharply from 4.6% in 2024. For the full year, SBA-related gains totaled $5.1 million, giving the bank a more diversified earnings mix and an additional lever to support returns even as spreads and rates move around.

Funding and Deposit Mix Trend in the Right Direction

Bankwell reported further progress on its deposit franchise, with average low-cost deposits up $22 million, or 5%, sequentially and $86 million, or 21%, compared with 2024. Management highlighted an “exit” cost of deposits at 3.08% after pricing actions, and noted that overall deposit costs fell roughly 15 basis points in the quarter to about 3.15%. This improving funding profile is important as it helps offset pressure on asset yields and supports the incremental expansion in net interest margin seen in the quarter.

Healthy Loan Growth and Solid Origination Engine

Loan production remained active, with $240 million of new loans funded in the quarter. Net loan growth reached $122 million for Q4 and $134 million for the full year, translating to roughly 5% growth versus year-end 2024. Over the year, Bankwell originated more than $900 million of loans, with funded originations reported at $758 million. Management framed this as evidence that the bank can grow prudently while maintaining underwriting standards, even amid competitive pressure.

Asset Quality Metrics Move in the Right Direction

Credit quality improved further, a key support for the constructive tone of the call. Nonperforming assets declined to 0.49% of total assets from 0.56% the prior quarter, helped by a $1.3 million sale of other real estate owned and a $400,000 collection on an SBA guarantee. Provision for credit losses was modest at roughly $600,000, while the allowance for credit losses stood at 1.08% of loans. Coverage of nonperforming loans increased to a solid 188%, giving investors additional comfort around potential future credit volatility.

Efficiency Gains and Capital Strength Underpin the Story

Operating efficiency and capital remained key pillars of the investment case. The efficiency ratio improved to 50.8% from 51.4% sequentially, suggesting better cost discipline and operating leverage despite ongoing investments. On the balance sheet, the bank remained well capitalized, with a consolidated CET1 ratio around 10.2% and a bank total capital ratio near 12.9%. Tangible book value per share climbed to $37.84, up about 11% versus 2024, reinforcing the notion that Bankwell is steadily building shareholder value while maintaining a conservative capital posture.

Tax Adjustment Temporarily Weighs on Reported Results

A one-time tax adjustment clouded the headline earnings but does not alter the underlying trajectory. The bank recorded a $1.5 million incremental income tax provision, including an $855,000 true-up and a $692,000 reserve addition. This drove the full-year effective tax rate to 27.4%, above what management views as a more sustainable level of roughly 25% going forward. The call made clear that investors should treat this as a non-recurring headwind rather than a structural shift in profitability.

Asset Yield Pressure and Floating-Rate Strategy Temper NIM Upside

Not all trends were tailwinds. Asset yields contracted 11 basis points sequentially to 6.23% as rate-sensitive assets reset lower, moderating the pace of net interest margin expansion. Management also intentionally increased the proportion of floating-rate loans to 38% of the portfolio, up from 23% at the end of 2024, to better manage repricing risk. While this strategy reduces interest rate risk, falling benchmark indices mean lower coupons on these loans, muting near-term NIM upside even as funding costs improve.

Higher Expense Run-Rate Reflects Growth Investments

The bank’s cost base is rising as it builds capacity for future growth. Headcount climbed more than 10%, from about 145 to roughly 170 full-time equivalents, reflecting investments in people, infrastructure and capabilities. Management guided to total non-interest expense of $64–$65 million for 2026, signaling a higher recurring expense run-rate. They argued, however, that these investments are necessary to support revenue growth, risk management and technology, with the expectation that strong pre-provision profitability will absorb the added costs.

Managing Through Business Volatility and Competitive Pressure

Management acknowledged pockets of volatility that investors will need to monitor. Elevated prepayment activity during the year introduced lumpiness into loan growth, with some 2025 payoffs described as unexpected. Meanwhile, SBA activity was disrupted earlier by a government shutdown, underscoring the inherent seasonality and concentration risk in SBA-related non-interest income. On the competitive front, the bank is facing pressure on loan spreads as rivals offer tighter credit spreads, and coupons on floating-rate originations decline alongside falling indices. These factors could constrain asset yields and new-loan pricing if the rate environment softens further.

2026 Outlook Anchored by Mid-Single-Digit Growth and Stable Returns

Looking ahead, management laid out a constructive but disciplined guide for 2026. They are targeting loan growth of 4–5%, net interest income of $111–$112 million, and non-interest income of roughly $11–$12 million, with total non-interest expense of $64–$65 million as they continue to invest in people, technology and infrastructure. About $1.2 billion of time deposits are expected to reprice over the next 12 months, with an average rate reduction of roughly 32 basis points, which should deliver an estimated $4 million annualized benefit to net interest income, or about 12 basis points of NIM. Management expects an effective tax rate of around 25% and implied operating returns on average assets north of 1.20%, broadly in line with the 1.29% operating ROA delivered in the quarter, all while remaining comfortably capitalized.

In sum, Bankwell Financial Group’s earnings call painted a picture of a bank with improving core profitability, strengthening asset quality and a more diversified revenue mix, supported by a growing SBA business and better deposit costs. While asset yield compression, a higher expense base and some business volatility present real challenges, management’s guidance and capital position suggest they are well placed to navigate them. For investors, the story is one of solid, if not spectacular, growth backed by disciplined risk management and a clear focus on enhancing returns over the next two years.